Request By:
Thomas G. Alig, Jr., Esq.
115-117 Park Place
Covington, Kentucky 41011
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter concerning water rates in the city of Ludlow. The city currently prepares water bills based upon readings of meters showing the amount of consumption at each residence. The city is contemplating a change from the meter rate system to the flat rate system, based on the number of occupants in each household or residence, and you ask this office for an opinion as to the legality of the proposed change.
A city of the fourth class, such as Ludlow, has the authority, pursuant to KRS 96.190, to provide the city and all persons in the city with various utility services, including water service. A city of the fourth class may, pursuant to KRS 96.350, purchase, establish, erect, maintain and operate a waterworks within or without the corporate limits of the city, for the purpose of supplying the city and its inhabitants with water. A city owning or operating a water system has the power to fix the rates to be charged for service to consumers subject to the rules as to reasonableness and nondiscrimination.
In connection with flat rates we first direct your attention to 94 C.J.S. Waters § 298, where the following appears:
"Water service is frequently supplied at flat rates, or rates fixed without reference to the quantity of water used, to dwelling houses, or other buildings, which rates may vary with the number of rooms, or the number or character of faucets and other appliances connected with the water system, and may include the use of water for all ordinary domestic purposes or for certain enumerated purposes only. A particular ordinance has been held to fix a maximum flat rate for the ordinary consumer, based on the fixtures used and the business for which the supply is intended.
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It has been held that meter rates are more equitable than flat rates; since all consumers do not use the same amount of water, a uniform flat rate unfairly distributes the cost, while metering, on the other hand, distributes the cost to the consumer in proportion to his use of the service and facilities of the water company. Flat rate service is naturally conducive to careless and extravagant use of water; metered service, with charges based on quantity used, tends to reduce waste, inasmuch as inordinate use will be tempered by consumer self-interest."
In Trachsel, Public Utility Regulation, p. 352 (1947), the author comments on flat rates as follows:
"Before meters came into use, the flat rate was quite commonly employed in making charges for electricity. This type of rate provides for a certain charge for a given period, such as a day, week, month, year, etc., regardless of whether much or little energy is used. It may be a fixed sum per customer, but not necessarily the same for every customer; or it may be based on his installation of energy-consuming devices, sometimes called a 'fixture rate.' Under a fixture rate a flat monthly charge would be made on the basis of lamps or outlets on the customer's premises. This is an improvement over the ordinary flat rate as it comes nearer to charging in proportion to the commodity consumed. However, it does not come near enough and was soon discarded. Flat rates for domestic consumers are inequitable, and they encourage waste. With the development of cheap meters, this type of rate has practically disappeared."
The following appears in 64 Am.Jur.2d Public Utilities § 119:
"A classification according to flat or meter rates is a valid one and is not of itself unreasonable or discriminatory, at least where any consumer may have a meter installed. Nor does the fact that one price is fixed for the consumer who has a meter, and a different price for one who has none, make an ordinance fixing water rates uncertain and indefinite, or show discrimination. Nor is it unlawful for a public utility to adopt meter rates gradually or to serve some customers at flat rates and others at meter rates. . . ."
In the making of rates of charges for a public utility service the primary requirement is that there be a uniformity of treatment of consumers similarly situated. This requirement does not forbid reasonable differences in rates of charges, and classifications for the establishment thereof, for application to consumers not similarly situated, or not served under the same or substantially similar conditions. See 40 ALR2d 1331, 1332. Absolute equality of rates is not required and classification may be made according to the quantity or amount used or received, the time of use, the manner, conditions, character or cost of the service furnished, the nature and use made of the premises to which the water is supplied, the purpose for which the service or product is received or the line of business carried on therein, or other matters which present a substantial difference as grounds for the distinction. See 94 C.J.S. Waters § 297.
Therefore, in conclusion, a city has the authority to supply water service at flat rates rather than meter rates although many of the authorities are of the opinion that the use of flat rates is less equitable and more wasteful than meter rates. While many factors may be considered and utilized by a municipality in establishing reasonable and nondiscriminatory water rates, it is our opinion that the city should not establish a water rate based on the number of occupants or residents in the household.